Taking Risks and Making Profits within the Dynamic Business Environment

1. Taking Risks and Making Profits within the Dynamic Business Environment Chapter 1

2. Learning Goal 1 • Describe the relationship between profit and risk, and show how businesses and nonprofit organizations can raise the standard of living for all.

3. Entrepreneurship and Wealth Building • Success in business involves finding a need and filling it. • A business provides needed goods, jobs, and services to people in the area. • Successfully filling a need may make you rich. • Businesses provide people with the opportunity to become wealthy.

4. Goods are tangible products such as computers, food, clothing, cars, and appliances. • Servicesare intangible products that can’t be held in your hand, such as education, health care, insurance, recreation, and travel and tourism. • A BUSINESS is any activity that seeks to provide goods and services to others while operating at a profit. • An ENTREPRENEUR is a person who risks time and money to start and manage a business.

5. Revenues, Profits, and Losses • Revenues – Expenses = Profit or Loss • Approximately 80,000 businesses in the U.S. fail each year, meaning a lot of companies are operating at a loss.

6. REVENUE is the total amount of money a business takes in during a given period by selling goods and services. • PROFITis the amount a business earns above and beyond what it spends for salaries and other expenses. • A LOSS occurs when a business’s expenses are more than its revenues

7. Matching Risk with Profit • RISK is the chance an entrepreneur takes of losing time and money on a business that may not prove profitable. • Not all enterprises make the same amount of profit. • The more risks you take, the higher the rewards may be.

8. STANDARD OF LIVING AND QUALITY OF LIFE • Entrepreneurs provide employment for other people. • They also pay taxes that are used for schools, hospitals, and other facilities. • Businesses are a part of an economic system that helps to create a higher standard of living and quality of life for everyone. • Potential businesspeople must find a location with the right level of taxes and regulations • The combined efforts of businesses, nonprofit organizations and government agencies are requires to maintaining a high quality of life.

9. STANDARD OF LIVING: amount of goods and services people can buy with the money they have. • QUALITY OF LIFE:general well-being of a society in terms of political freedom, natural environment, education, health care, safety, amount of leisure, and rewards that add to the satisfaction and joy that other goods and services provide.

10. RESPONDING TO THE VARIOUS BUSINESS STAKEHOLDERS • STAKEHOLDERS are all the people who stand to gain or lose by the policies and activities of a business and whose concerns the business needs to address. • Stakeholders include customers, employees, stockholders, suppliers, bankers, people in the local community, environmentalists, and elected leaders. • The challenge for companies in the 21st century will be to recognize and respond to the needs of their stakeholders. • To stay competitive, businesses may outsource jobs to other countries.

11. Outsourcing means contracting with other companies (often in other countries) to do some or all of the functions of the firm, like its production or accounting tasks. • Many companies have set up design and production facilities here in the United States, a practice known as insourcing. • The decision whether to outsource or to insource is based on what is best for all the stakeholders.

12. USING BUSINESS PRINCIPLES IN NONPROFIT ORGANIZATIONS • A Nonprofit Organization is an organization whose goals do not include making a personal profit for its owners or organizers. • Nonprofit Organizations—such as government agencies, public schools, charities, and social causes—make a major contribution to the welfare of society. • Social Entrepreneurs are people who use business principles to start and manage organizations that are not for profit and who help countries with their social issues. • You need the SAME SKILLS to work in nonprofit organizations that you need in business, including information management, leadership, marketing, and financial management. • Businesses, nonprofit organizations, and volunteer groups often strive to accomplish the same objectives.

13. Learning goal 2 • Compare and contrast being an entrepreneur and working for others.

14. ENTREPRENEURSHIP VERSUS WORKING FOR OTHERS • There are two ways to succeed in business: • One way is to rise up through the ranks of a large company. • The more risky path is to start your own business. • Millions of people have taken the entrepreneurial risk and succeeded.

15. THE IMPORTANCE OF ENTREPRENEURS TO THE CREATION OF WEALTH • The Factors Of Production are the resources used to create wealth: • Land(or natural resources) • Labor (workers) • Capital • This includes machines, tools, buildings, or whatever is used in the production of goods, but not money. • Money is used to buy factors of production. • Entrepreneurship • Knowledge

16. THE BUSINESS ENVIRONMENT • The BUSINESS ENVIRONMENTconsists of the surrounding factors that either help or hinder the development of business: • The economic and legal environment • The technological environment • The competitive environment • The social environment • The global business environment Businesses that create jobs and wealth grow and prosper in a healthy environment.

17. Learning goal 3 • Analyze the affect of the economic environment and taxes on businesses.

18. THE ECONOMIC AND LEGAL ENVIRONMENT • People are willing to risk starting businesses if they feel that the risk is acceptable. • Governments can lessen the risk of starting a business and increasing entrepreneurship and wealth by: • Minimizing spending and keeping taxes and regulations to a minimum. • Allowing private ownership of business. • Passing laws that enable businesspeople to write enforceable contracts. • Establish a currency that is tradable in world markets. • Minimize corruption in business and government.

19. Corrupt and illegal activities negatively affect the business community and the economy. • The capitalist system relies heavily on honesty, integrity, and high ethical standards. • The faltering economy of 2006-2009 was partially caused by mortgage bankers pushing borrowers into subprime mortgages. • The ripple effects reduced the value of housing and led to a freeze in credit markets

20. Learning goal 4 • Describe the effects of technology on businesses

21. THE TECHNOLOGICAL ENVIRONMENT • Few technical changes have had a more lasting impact on businesses than information technology. • Innovations such as the iPod, iPhone, and Blackberry have changed how people communicate.

22. HOW TECHNOLOGY BENEFITS WORKERS AND YOU • Technology means everything (ex. phones, copiers, computers, personal digital assistants, and various software programs) that makes business processes more efficient and productive. • Effectiveness means producing the desired result. • Efficiency means producing goods and services using the least amount of resources. • Productivity is the amount of output you generate given the amount of input (such as hours worked.) • The average worker in the U.S. contributes almost $65,000 to GDP. • Tools and technology increase productivity.

23. THE GROWTH OF E-COMMERCE • E-Commerce is buying and selling of goods over the Internet. • Two main types of e-commerce transactions: • Business-To-Consumer (B2C) • Business-To-Business (B2B). • B2B E-Commerce consists of selling goods and services from one business to another. • Traditional businesses need to learn how to deal with competition from B2B and B2C firms.

24. USING TECHNOLOGY TO BE RESPONSIVE TO CUSTOMERS • Businesses that are most responsive to customer wants and needs will succeed. • Businesses can use technology (ex. UPC bar codes on products) to become more responsive. • Database: electronic storage file for information; • Databases also allow stores carry fewer items and less inventory. • Gathering personal information has led to identify theft, obtaining individuals’ personal information, for illegal purposes. • The Federal Trade Commission says that millions of Americans are victims of identify theft each year.

25. Learning goal #5 • Demonstrate how businesses can meet and beat competition.

26. THE COMPETITIVE ENVIRONMENT • Making quality products is not enough to stay competitive in world markets—now you have to offer quality products and outstanding service at competitive prices.

27. COMPETING BY EXCEEDING CUSTOMER EXPECTATIONS • Customers today want good quality at low prices plus great service. • Business is becoming customer-driven— customers’ wants and needs come first. • Successful companies must listen to customers to determine their wants and needs and then adjust their products, policies, and practices to meet these demands.

28. COMPETING BY RESTRUCTURING AND EMPOWERMENT • To meet the needs of customers, firms must enable their front-line workers to respond quickly to customer requests. • Empowerment is giving frontline workers the responsibility, authority, freedom, training, and equipment they need to respond quickly to customer requests. • It sometimes takes years to restructure an organization to empower numbers.

29. Learning goal #6 • Analyze the social changes affecting businesses.

30. THE SOCIAL ENVIRONMENT • Demography is the statistical study of the human population in regard to its size, density, and other characteristics, such as age, race, gender, and income. • Managing Diversity • Today diversity includes many population groups, including seniors, the disabled, marrieds, singles, the devout, and so on. • The number of legal and illegal immigrants has had a dramatic impact on cities and businesses.

31. Two Significant Demographic Groups • OLDER AMERICANS • U.S. citizens aged 65-74 are the richest demographic group in U.S. society. • Think of the career opportunities of providing goods and services for older adults. • Paying Social Security to seniors will drain huge amounts of money from the economy. • Single-Parent Families • Single parents have encouraged businesses to implement family-friendly programs such as family leave and flextime.

32. Learning goal #7 • Identify what businesses must do to meet the global challenge, including war and terrorism.

33. THE GLOBAL ENVIRONMENT • Two major environmental changes : growth of global competition; increase of free trade among nations. • Better transportation, communication have led to more trade. • World trade (globalization) has improved living standards around the world. • World trade has both benefits and costs (Ch 3) • War And Terrorism • The wars in Iraq and Afghanistan have drawn billions of dollars from the American economy. • The threat of terrorism makes people more fearful and cautious and adds to a business’ organizational costs. • Businesspeople benefit from a peaceful and prosperous world.

34. The Ecological Environment • Climate change is the movement of the temperature of the planet up or down over time. • Greening is saving energy and producing products that cause less harm to the environment.

35. Learning goal #8 • Review how past trends are being repeated in the present and what they mean for tomorrow’s college graduate.

36. THE EVOLUTION OF AMERICAN BUSINESS • So productive that fewer workers are needed in the industrial sector to produce goods. • Technology made the agricultural industry so productive that farmers dropped from 33% of the population to about 1%. • Many farmers lost their jobs and went to work in factories. • Now technology is making manufacturing more productive and workers again lost their jobs.

37. PROGRESS IN SERVICE INDUSTRIES • Fastest growing firms provide services in areas like law, health, telecommunications, entertainment, and finance. • Services make up more than half the value of the U.S. economy; generated almost all the increases in employment. • Service-sector growth has slowed, but is still the largest area of growth. • There are more high-paying jobs in the service sector than in the goods-producing sector

38. YOUR FUTURE IN BUSINESS • The service sector now seems to be losing out to a new era. • This information-based global revolution will alter the way business is done in the future. • Most concepts and principles that make business more effective, efficient are applicable in government agencies, nonprofit organizations